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Volume, margin boost for Dish TV

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While improving operational metrics could help the company post its first net profit this financial year, higher content costs and increased competitive intensity are key risks.

Subhash ChandraThe stock has jumped 20 per cent over the last month on the back of a good March quarter performance and favourable 2011-12 guidance by the management. The company’s performance, believe analysts is likely to improve on counts of higher subscriber additions, increase in average revenues per subscriber (ARPU) and fixed content costs. Dish TV’s subscriber base is expected to grow by an average 20 per cent over the next two years. This coupled with higher ARPUs is likely to help the company double its revenues by 2012-13 as compared to the last financial year. The company, which has been making losses, is expected to turn in its first profits at the net level in the current financial year.

UBS Securities India’s Nupur Agarwal believes that catalysts for the stock going ahead includes strong operational and financial performance, mandatory digitisation, likely reduction in license fee and rationalisation of tax structure. Among the key risks are competition in the form of five other operators and digital cable players. While content costs are fixed for 2011-12, these could increase from the next fiscal if broadcasters opt for a variable structure based on subscriber numbers. Given the target prices of between Rs 95-100, the stock which trades at an estimated 2011-12 Enterprise value (EV)-to- Ebitda of 17 times, is likely to fetch 16-22 per cent returns over the next year.
 

IMPROVING METRICS
In Rs crore Q4,FY11 FY11 FY12E
Subscribers (mln) 10.4 10.4 13.4
% change  10.6 50.7 28.8
(Rs) 150.0 142.5 160.0
% change  5.6 2.8 12.2
Revenues 432 1,436 2,150
% change  15.8 32.0 49.7
Ebitda 90 238 590
% change  36.0

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147.0
Ebitda (%) 20.8 16.6 27.4
change in bps 760

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1,084
Net profit -37 -192 54
E: Estimates,                                                            % change is sequential for Q4
ARPU: Average revenues per user                  Source: Company, analyst reports 

Aided by the World Cup, the company added over a million subscribers in the March 2011 quarter taking its total gross subscribers to 10 million. This helped Dish TV to post a 43 per cent increase in revenues year-on-year to Rs 433 crore. While the management has indicated that it is likely to add 3-3.5 million subscribers in 2011-12 taking its total to 13.4 million subscriber, analysts believe that the additions could go up if the process of mandatory digitisation process is hastened. The sector, which has added 13.5 million subscribers in 2010-11, is likely to add a similar number this fiscal taking the total DTH base to 45 million. For Dish TV, analysts expect it to retain its 30 per cent market share in 2011-12.

While volume growth has been good, the ARPUs too have a seen a jump. The small price hike taken in the last quarter and better package mix have helped the company improve its ARPUs, which were in the range of Rs 132-142 levels for the last eight quarters, to Rs 150 levels. Given that the company has taken a hike of Rs 5-25 in subscription rates in May 2011, ARPUs are likely to improve further in 2011-12. The company’s CEO has projected for a 10-12 per cent hike in ARPUs to Rs 165 for the fiscal and believes that 7-10 per cent of the total customer acquisitions during the year will be in the form of (HD) subscription. Given that HD subscribers on an average pay a higher monthly subscription of around Rs 450-550, the movement to a higher package augurs well for the company. Further, Deepan Sankar of HSBC InvestDirect Securities believes that the potential for further improvement in ARPU is possible since Dish TV has stopped offering its base package to new subscribers.

Good volume growth and improving ARPUs have helped the company enhance its profitability. Its earnings before interest, tax, depreciation and amortisation (Ebitda) margins for the March quarter improved 760 basis points to 20 per cent on a sequential basis. One percentage point is 100 basis points. Going ahead, for 2011-12, analysts expect margins to move up by another 600-700 basis points to 26 per cent as operating leverage as well as better product mix kicks in.

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